Diversification Into Medical And Automotive Sectors Will Support Future Earnings Stability

Key Takeaways

• Improved cost of capital and substantial liquidity position FCPT for favorable acquisitions and enhanced earnings growth opportunities.
  
• Diversification into stable sectors like medical and automotive alongside restaurant assets may maintain or increase net margins.
  
• Concentration risk from key tenants and market volatility could hinder Four Corners Property Trust's revenue stability and growth prospects amidst rising interest rates and competitive pressures.

Catalysts

FCPT, headquartered in Mill Valley, CA, is a real estate investment trust primarily engaged in the ownership, acquisition and leasing of restaurant and retail properties.

• FCPT's significant liquidity build-up is expected to fund new growth opportunities, potentially increasing future revenue.
  
• The company has improved its cost of capital, which could lead to more favorable acquisition opportunities and enhanced earnings.
  
• New hires and the expansion of the investment team in 2025 are anticipated to increase FCPT's capabilities, potentially impacting future revenue growth positively.
  
• The diversification into medical and automotive sectors alongside existing restaurant assets may maintain or increase net margins due to stable and defensive sectors contributing to earnings.
  
• Capital raised through efficient programs and an extension of the credit facility provide FCPT with substantial liquidity, which could support future growth and result in higher earnings.

Four Corners Property Trust Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Four Corners Property Trust's revenue will grow by 8.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 37.5% today to 44.9% in 3 years time.
• Analysts expect earnings to reach $153.5 million (and earnings per share of $1.22) by about March 2028, up from $100.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.3x on those 2028 earnings, up from 28.8x today. This future PE is lower than the current PE for the US Specialized REITs industry at 29.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Four Corners Property Trust Future Earnings Per Share Growth

Risks

• Rising interest rates have created a challenging backdrop for net lease companies, potentially impacting FCPT's future acquisition volumes and overall profitability. This could affect revenue growth if acquisition activity slows.
  
• The company's significant reliance on a few key tenants, particularly with Darden's brands making up 48% of the portfolio, may pose a concentration risk, impacting revenue stability if any issues arise with these tenants.
  
• Despite strong historical collections and occupancy, any future economic downturn or shift in consumer dining habits could impact rent collection from casual dining tenants, directly affecting cash flow and earnings.
  
• The need to constantly raise capital and maintain a favorable cost of capital to fund acquisitions makes FCPT vulnerable to market volatility, which could impact future revenue growth and operational margins.
  
• Competition within the investment market, particularly in sectors like QSR which remain very competitive, could pressurize FCPT’s ability to acquire assets at favorable prices, impacting investment yield and earnings.

Valuation

• The analysts have a consensus price target of $30.25 for Four Corners Property Trust based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $342.2 million, earnings will come to $153.5 million, and it would be trading on a PE ratio of 29.3x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $28.99, the analyst price target of $30.25 is 4.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.